Segment reporting

IFRS 8 Operating Segments is the standard now in force that specifies the reporting of segment information by groups. The standard is a convergence one and its wording is exactly that of the US standard SFAS 131, apart from editorial changes to conform the vocabulary to IFRS terms instead of US GAAP ones. The standard applies only to listed groups and specifies what constitutes a reportable segment and what information should be provided. The key issues are that the information should be the same as that provided to the ‘chief operating decision-maker’ in a group. Consequently it may not be based on IFRS measurements, although it must be reconciled to the numbers in the financial statements.

The approach is known as ‘through the eyes of management’ and can be seen as an attempt to address information asymmetry by providing to investors the same information that management are using. It has a practical advantage that, as compared with the previous standard, it does not require the group to prepare special numbers that are used only for public reporting.

When IFRS 8 was introduced there was some pushback from European constituents. They pointed out that the previous standard (IAS 14) had mandated disclosures on both a geographical and a sectoral basis, and that the segments had to be calculated on the same basis as the published financial statement to which they referred. This meant, it was claimed, that there was much more comparability from one company to another ...

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